Up To $2.3 Billion In California Public Funds Was Hiding In Plain Site

SACRAMENTO -- A week after uncovering a hidden-funds scandal at the state parks department, finance officials are now trying to piece together why the balance sheets for similar "special funds" are off by $2.3 billion -- money that appeared to be right under their noses amid California's financial meltdown.

An analysis by this newspaper of California's little-known 500-plus special funds -- like the ones that included $54 million in parks money shielded from the Department of Finance -- shows tens of millions of dollars in discrepancies in numerous accounts.

The fund that gives restitution to violent crime victims was off by $29 million. The one that provides children with low-cost health insurance was $30 million out of balance. The fund that rewards people for recycling bottles and cans was $113 million off.

"Where are these dollars?" asked state Senate budget chairman Mark Leno, D-San Francisco, who said it was a "big problem" that the special funds "clearly have not been getting enough attention."

The newspaper's review found at least 17 accounts that appeared to have significantly more reserve cash than what individual departments reported to the finance department, though it's unclear why.

An account that helps build state courts had $27 million more on the controller's ledger than the figure reported to the finance department. A pool of money that helps problem gamblers was off by $7.9 million. Another fund that assists in prison guard training was off by $6.4 million.

The problem could date back decades and is only now coming to light after discrepancies were discovered in the parks funds, costing longtime parks director Ruth Coleman and deputy director Michael Harris their jobs.

The potential error is especially remarkable considering how easy it would have been to catch.

Earlier this year, dozens of state departments told Gov. Jerry Brown's budget aides that they had a combined $8.8 billion left in "rainy day" reserves for their special fund accounts as of a year ago. At the same time, the controller's office tabulated a total of $11.1 billion in cash reserves for the accounts.

But finance officials, operating under a longtime honor system, never checked the controller's total -- and no oversight groups caught the discrepancy, even though the numbers are publicly available on two state websites. As a result, Brown and the Legislature used the smaller $8.8 billion figure when they approved the state's annual spending plan last month.

"That does not necessarily translate into hidden funds," said Department of Finance spokesman H.D. Palmer. "In many cases, there will very likely be legitimate accounting reasons for the difference in those funds."

For instance, a chunk of funding promised in December but delivered in July would be counted in separate years by the controller's office and finance department.

Finance officials are now going through each fund, line by line, to determine how much of the money is truly hidden.

"That ($2.3 billion) number will be inaccurate by the time we are done," Palmer said, adding that the department quickly launched a "thorough and expeditious" statewide review after the parks scandal.

On Wednesday, before the full scope of the balance sheet discrepancy came to light, Brown said the park fund discovery was "good."

"When somebody comes and says, 'Hey, guess what, we have some money over here,' well, that's a lot better than saying, 'Whoops, we don't have any money,' "said Brown, who is campaigning for tax increases in November as the centerpiece of his plan to balance the budget.

The funds in question wouldn't help the general fund budget crisis in most cases because they are earmarked for specific programs.

Still, even the perception of more hidden money won't do any favors for a state government that routinely gets spanked in public opinion polls.

"It's hard to ask people to increase their taxes when they hear about things like this," said state Sen. Mark DeSaulnier, D-Concord, a member of the Senate budget committee. "I don't know (how this happened), but it's completely unacceptable."

Anna Carr, deputy director of the Gambling Control Commission, which manages one of the funds with a huge discrepancy, echoed the finance department's warning not to jump to conclusions that the state is about to see an incredible windfall.

"Just because (there is a discrepancy) doesn't mean there is a problem on its face," Carr said. "The (accounting) basis may not be the same."

Still, there were no accounting differences to explain the parks discrepancies, and other funds have managed to perfectly sync the two figures. For instance, accounts that help pay for pesticide regulation, improving trial courts, inland fisheries, and tobacco research all show the same balances on both the finance and controller spreadsheets.

Others are different by only $1,000 or so. Those accounts include funds for children's medical services rebates, air quality improvement and hospital construction.

In a few cases, the opposite is true: The controller shows that the funds have less reserve cash than what the finance department lists in its budget, sometimes by a wide margin.

Most departments in charge of the specific funds didn't return calls requesting a comment, or they referred questions to the finance department, where Palmer declined to discuss specific fund discrepancies until after the department's investigation is finished.

Whose job is it to check for differences in the two funding sheets?

"There is someone: the Department of Finance," said Jacob Roper, spokesman for Controller John Chiang.

Palmer conceded that his department should have been doing that and has vowed to do so going forward. He said Finance Director Ana Matosantos was unavailable for an interview Thursday.

But it's also the individual departments in charge of the special accounts that provide the fund balance figures to finance officials and could easily determine whether their numbers matched the totals posted by the controller.

Assembly members and senators will hold hearings on the issue after they return from their summer recess Aug. 6 to determine why and how this happened.

Sen. Joe Simitian, D-Palo Alto, a budget committee member, said the state needs to ensure "our books are accurate, and restore some semblance of public trust and confidence."